Question

After experiencing such great success with their food cart, Nathan and Cody are considering purchasing a food truck to serve other communities. This would allow the Great Tamale, GT, to reach even more customers in different geographic locations. There would be an increase in the selling price per plate. There will also be an increase in the fixed costs of $30,000 for advertising to inform the public of this change (this amount is already included below under Food Truck data).   The financial information is presented below for this alternative as well as the original data. Assume 31,125 plates are sold for the food cart and 45,625 plates are sold for the food truck.

	Food Cart	Food Truck
Sales	$   217,875.00	$365,000.00
Variable costs	46,687.50	103,437.50
Contribution margin	171,187.50	261,562.50
Fixed costs	90,000.00	147,500.00
Income before taxes	81,187.50	114,062.50
Income taxes (32% rate)	25,980.00	36,500.00
Net income	$    55,207.50	$ 77,562.50

If the company wishes each scenario, food cart and food truck, to generate target income of $250,000, what is the amount of sales that needs to be generated? How many plates will then need to be sold? Prepare a contribution margin statement for this step and verify that your income before taxes is $250,000 (after-tax net income in fact equals $170,000 at a tax rate of 32%) for both the food cart and food truck.

THE ANSWER SHOULD BE A TARGET INCOME OF $432,727 AND 61,819 UNITS FOR THE FOOD CART. $554,695 AND 69,337 UNITS FOR THE FOOD TRUCK. SHOW WORK.

Answer 1

Answer
Food cart
No. of plates to be sold
Fixed expesnes+target income/Contribution margin per unit
(90000+250000)/5.5	61819	answer
	in $
Sales needed (61819*7)	432727	answer
working
Contribution margin per unit
171187.5/31125	5.50
Sales price per unit	7
217875/31125
Food truck
No. of plates to be sold
Fixed expesnes+target income/Contribution margin per unit
(147500+250000)/5.73	69337	answer
	in $
Sales needed (69337*8)	554695	answer
working
Contribution margin per unit
261562.5/45625	5.73
Sales price per unit	8.00
365000/45625
Contribution Margin statement
	Food Cart	Food Truck
Sales	432727	$554,695
Variable costs	92727	$157,195
Contribution margin	340001	397500
	(61819*5.5)	(69337*5.73)
Fixed costs	90000	147500
Income before taxes	250001	250000
Income taxes (32% rate)	80000	80000
Net income	170000	170000
If any doubt please comemnt. If satisfied you can rate